Rules For LLC: Everything You Need to Know
The rules for LLC are the regulations you will have to abide by if you want to legally run your limited liability company. 4 min read
2. Rules for LLC Creation
3. Rules for LLC Federal Taxation
4. Rules for LLC State Taxation
5. Other LLC Rules
Updated November 5, 2020:
The rules for LLC are the regulations you will have to abide by if you want to legally run your limited liability company. There are many LLC rules that vary from state to state, but there are some rules that are in force in all fifty states. These rules mostly pertain to LLC creation and LLC taxation.
Rules for LLC Creation
When creating your LLC, there are rules that must be followed to complete this process properly. Such rules pertain to:
- Naming the LLC. An LLC name cannot be the same as another LLC registered in the state, it cannot have forbidden or restricted words unless authorized to do so, and it must have some variation of the term “Limited Liability Company” in it.
- Registered agents. An LLC must have a registered agent or an individual or business that serves and receives legal papers on behalf of the LLC. This registered agent must be a resident of the state or a business authorized to do business in the state, and either must have a physical street address in the state.
- Articles of Organization. These must be filed with the Secretary of State or a similar office in order to finalize your LLC’s existence. Articles of Organization should include such details as your LLC’s name, address, and type of business; your name and signature; your registered agent’s name and address; and the names and address of other LLC members, if there are any. There will also be a filing fee that must be paid, its amount varying by state.
- Publishing a public notice. Some states require aspiring LLC owners to publish their intention to form an LLC several times in their local paper in the weeks before they file their Articles of Organization. Once this is done, an affidavit of publication must be sent to the LLC filing office.
- Obtaining permits and licenses. Some businesses require permits and/or licenses before they can be legally run. What licenses are required will vary by state and community. The U.S. Small Business Administration keeps information pertaining to the required permits and licenses.
- Adhering to employment laws. If you plan on hiring employees, you must obtain an EIN, or employer identification number, from the IRS. You should also be sure to meet all state laws related to employee hiring.
Rules for LLC Federal Taxation
Rules pertaining to LLC taxation on the federal level are fairly simple and mostly relate to how LLC taxes are to be filed, which depends on what form your LLC takes. These forms are:
- Single-member LLC. You will file your taxes on Form 1040 Schedule C.
- Multi-member LLC. You will file your taxes on the regular 1040 personal tax return.
- LLC operating as a corporation. Form 1120 must be filed for the entire corporation. A Schedule K-1 detailing each member’s LLC profit and loss share is then sent out. The members then use this to complete Form 1040 with Schedule E attached. They must also estimate their tax total for the following year, making quarterly payments on this.
Aside from this, the other main rule to keep in mind pertaining to federal taxes is that LLC owners are considered being self-employed and thus must pay self-employment taxes, which cover Medicare and Social security, the amount of which is not withheld from their paychecks as it would be if they were regular employees. The current self-employment tax rate is 15.3%.
Rules for LLC State Taxation
On the state level, some states may levy additional taxes against an LLC based on its income. For example, in California, LLCs making more than $250,000 annually must pay a tax ranging from $900 to $11,000, based on their income level above that threshold. Some states may also impose an annual, non-income related tax known as a franchise tax, annual registration fee, or renewal fee. The average amount for this is $100.
Other LLC Rules
Other LLC rules not related to creation and taxation that one should keep in mind include:
- LLCs that offer professional services, such as the services of lawyers, doctors, and accountants, must be known as PLLCs limited liability companies.
- Some business types, like insurance companies, cannot operate as LLCs.
- LLCs must dissolve if their ownership changes unless specific provisions are made against this in the Articles of Organization or the LLC adopts an S corporation structure.
- LLCs must specify how long they will operate in most states. Usually, the maximum is between 30 and 40 years.
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